6 steps you need to take to
getting "RDR ready"
The FSB's Retail Distribution Review (RDR) is just around the corner
and firms need to be thinking about getting ready.
The UK RDR process started with consultation in 2006, fully six years
before implementation in 2012. Whilst the process will inevitably be a bit
different in South Africa, the direction of travel is fundamentally the same,
and if anything, the timescales appear to be significantly shorter. Some of the
RDR principles have already started.
Firms need to ensure they are ready, and the time it takes to make the
transition will depend on the firm, but if previous experience is anything to
go by, these things still take time.
In these situations, the early adopters advance the quickest, and I am
reminded of the famous quote attributed to Darwin "It's not the strongest of
the species that survives, but the one most adaptable to change." And
this change is quite a big one.
The headline is about making the move from getting paid commission by
product providers to getting paid fees by clients, but there's a bit more to it
than that.
The key issues are:
- Creating a profitable business structure
- Building your own 'product' and understanding how to market and deliver it
- Finding and managing the right clients
- Understanding how to position different conversations with new and existing clients
In this post, I want to provide an overview of what we see as the six
steps that firms need to take to get themselves "RDR Ready." We think
they need to happen in order.
1. Understanding who you have in
your business and defining your ideal client profile
The industry has taught financial advisers to prospect for anyone with
a pulse. It used to be a numbers game, and many firms have ended up with a
diverse range of customers and clients, some of whom are profitable and some of
whom are unprofitable. Some we have great relationships with and some we may
have sold something to once, and never seen since.
It's not just financial advisers that face this challenge. Almost all
businesses are having to be a bit smarter about who they work with. You need to
understand who your ideal clients are and what makes them ideal, because you
need to understand the problems that they will pay you to solve. You also need
to make a plan for what you will do about those clients that are less than
ideal.
2. Understanding what people
want and designing a proposition to meet it
We are going to need to be clear about the value we add to clients, and
be confident when answering the client's question "What do I get for my
money?" Clients have never had the visibility they will get after RDR and
it's quite likely that the press and media will be persuading clients to ask
the questions about value.
You may think your services are highly valuable (and they are)
but can you package them in a way that convinces your client, and persuades
them to willingly pay for those services? It helps when you know why your ideal
client is ideal and what they want.
3. The move to adviser charging
We need to find a way to price our proposition(s). Historically, the
price has been set by the industry, but now the price will be set by advice firms.
Will your clients pay what you want to charge in order to be profitable? Will
you be able to make a profit? Do you even know what it costs you to deliver
your service?
Financial advice firms are a diverse bunch, and there are lots of
pricing strategies to consider. You can't price your services though, until you
know what you have built, for whom, and what it costs to deliver it.
4. Positioning your services to
new prospects
The first meeting engagement process and conversation is a crucial
point to getting consistent buy-in from clients and ensuring their future
expectations are managed and met.
Now you've created a proposition, you'll need to articulate it in a
compelling way, so that prospects perceive it to be the value it genuinely
represents. You need to manage their expectations and communicate your service
and price confidently. That takes time and practice. How will you have those
conversations?
5. Developing your regular planning
service
Generating regular revenue means delivering ongoing value. Forget
'passive' income. There's nothing passive about having to continually deliver
value. To ensure you continue getting paid, you need to continue delivering
value. The key point for this is your regular planning or review service, which
for most clients will probably involve an annual meeting and some touch points
in between.
If you can't continue to deliver value, then clients will have the
option to switch off your fees. How are you going to design your ongoing
service to prevent this from happening?
6. Re-positioning your existing
client relationships
No, we haven't forgotten about your existing clients. You need to
develop an effective strategy that will take your existing client relationships
on the RDR journey with you. How do you ensure that you protect your existing profitable
relationships, your revenue stream and the value that you have created in your
business? And what do you say to those clients that are not profitable?
You don't want your existing clients to find out about RDR from anyone
other than you, and that conversation needs to take place from a position of
confidence.
There are plenty of other things to think about along the RDR journey,
but the first phase in surviving the changes is to make sure that your business
is still in one piece and is fit for the future.
Why don't you check out our
"RDR Reality Check"
self-evaluation to see how your firm shapes up. It's available as a free tool when
you register on our website. You'll also get instant access to our e books too.